November 14, 2005

How Can David Beat Goliath?- Strategy #3 Create the Scope Advantage!

Posted in David vs. Goliath, management at 8:50 am by scottmaxwell

When I was a kid, I was fascinated with the magnifying glass. I was amazed that I could make small objects appear large, but even more interested in what happened when I combined a magnifying glass with the sun and focused the energy of the sun on a single small spot on the ground. It burns! It was amazing…I would spend all kinds of time burning everything I could find (making patterns in wood was my particular favorite). At some point, my father made me wear sunglasses, as the focal point of light was pretty bright and he was concerned that the reflection of that focal point of energy into my eyes was not good (perhaps this is why I wear contacts now?).

So, what is the point? The point is that if you harness energy into a small focal point, the energy of that focal point can “burn? through anything! Even just the reflection of the focal point has a tremendous amount of energy. The key is that you need to take your available energy and focus it on a point that is small enough to do meaningful work.

The large company disadvantage…

Large companies have a difficult time with focus. They generally have many products aimed at many customer segments using many distribution approaches (they try to keep the distribution approaches and the customer segments narrow, but they naturally lose focus as they grow). Even though they have many more resources (a VERY large magnifying glass!), they need to take those resources and spread them across many different product markets (for these purposes, think of a product market as a specific product aimed at a specific customer segment using a specific distribution approach). Even with such a large magnifying glass, large companies can’t (and shouldn’t) train their resources on a single focal point. (They actually need several focal points at once, but imagine trying to hold two magnifying glasses, one in each hand, and focus the light of the sun on a pinpoint…very difficult to do!)

(Note: large companies sometimes discuss their “economies of scope? economic advantage, but it is the strategic advantage of small scope that I am talking about here!)

The emerging growth company opportunity…

This observation can be used by emerging growth companies to develop a scope advantage, by focusing on a small product market focal point and having an intense focus on meeting the needs of the target customer in that market. As a small company, you do not have as large of a magnifying glass or as large an energy source (i.e., staff), but if you focus your available resources on a small enough focal point, you will have more energy focused on that point than the large companies and, therefore, create the scope advantage!

Some ideas for how to create the scope advantage:

  1. Focus on a small niche product market. Going after the small niche product market supports the concept of focus. The most focused companies will target a specific target at a specific need (pain points, tastes, and scenarios are all needs) for a specific customer type (i.e., persona) using a specific distribution approach.
  2. Make sure that you train the energy of the entire company on your chosen niche. Once you choose your niche, you need to get the efforts of everyone in the company focused on delivering to that niche (and only that niche). The magnifying glass needs to be placed at just the right point and angle to create the burn in the target point of the wood and, likewise, the staff of the company needs to be extremely focused on delivering against the specific needs of the niche (the information advantage will help as well). The activities that you need to get focused include product activities, marketing activities, distribution activities, and customer service activities.
  3. Ensure that each person in your company is focused on his or her 2-4 major activities that will make you win in your niche. The company as a whole needs to focus, each group in the company needs to focus, and each individual in the company needs to focus. Believe me, this works! It also takes management time and attention to ensure everyone has the same focal point!
  4. Set your company up with as small a staff as possible. What, a small staff? Yes, as small a staff as possible full of truly “A? caliber people will allow you to focus your time (less management) and their time (less communication overhead) much better than a large staff. (Note: I am not saying not to hire for positions that you must have, just that you are better off with as few people as possible.)
  5. Make sure that all of the management systems reinforce the focus (corporate/department goals, plans, resource approval processes, reports, staff meetings, compensation systems, etc.). This is NOT a throw away point, as everyone in your company has ideas that they want to pursue that are not necessarily aligned with your focal point. These systems might include:
  • Don’t share your ideas outside of the focal point with the company broadly. This will reinforce their concept of you being focused and, hopefully rub off on the rest of the company.
  • Encourage brainstorming of new ideas for your current focal point while discouraging the brainstorming of new ideas outside of your focal point (this is probably somewhat controversial, but necessary in my mind).
  • Develop an elevator pitch that you can constantly reinforce with your employees, prospects, customers, and partners telling them your strategy and execution approach. Recommunicate this constantly until you here everyone in the company and outside the company repeating it.
  • Develop metrics for each department related to your focal point and publish them against goals and historicals so that you can keep everyone focused.
  • Make the employees paranoid about competitors, both real and imagined (Microsoft works this idea).
  • Keep as many people as possible in the same office space. This is not always practical when you have field sales people, an “A? caliber must have manager that lives elsewhere, or an offshore development effort, but I would strongly urge you to keep everyone together and try not to hire people that can’t be in the office when they are not networking or meeting with prospects, customers, or partners.
  • Keep a repository of new ideas so that people have an outlet for new ideas that are not within the current focal point (perhaps using a Wiki). This should increase focus AND give you some good ideas when you decide to expand. Encourage the use of the repository for the current focal point.

You hear about focus all the time. But if you apply it, you will, like the magnifying glass and the sun, be capable of “burning through? your niche! Need more energy given the available resources? Just make the focal point smaller!

Next time: Strategy #4: Create the Scale Advantage!

endnote: I modified my original posting to incorporate more detail in the fifth point.

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8 Comments »

  1. […] Create the Scope Advantage! 2005-11-14 Big companies have too many employees, customers, and products to focus on doing any single thing well. Their efforts are always diffused among their many concerns. Small companies have the advantage of being able to focus on a single problem in a specific niche within a single market. […]

  2. […] This strategy may seem similar to creating the scope advantage, but it is very different. The scope advantage is about focus; the scale advantage is about what market you should focus on. Interestingly, large companies will discuss having economies of scale, which can be an economic advantage. However, small scale can be a strategic advantage, especially for the emerging growth companies! […]

  3. […] Given that large technology companies are not addressing this opportunity very well, and they already have the Scope Advantage, emerging growth companies can seize the opportunity to become THE brand in their particular market niche! The goal is that when people hear or read your name or see your symbol, they trigger the mental model AND if they think of the mental model, they trigger your name or “see” your symbol! […]

  4. […] I wrote a recent post on the benefit and practices of focus, but wrote more about how to focus than when to focus. The chart below (of a successful product/company) is meant to expand on that post by showing the stage aspects of focus. Generally, prior to starting a company, and during the initial stages of determining exactly what you are trying to achieve in your product market, you will have a relatively broad scope (so that you can understand the landscape of the various product markets that you are considering as well as the technologies and distribution models that you might deploy). Once you nail down what you are trying to accomplish, you should move rapidly to a pinpoint focus on executing against your goals (i.e., keep your head down and execute). Extra thinking outside of your extreme focus will slow you down, perhaps considerably. As you begin to complete the product and get a few paying customers, you can expand the focus slightly. Finally, as you move up the S-curve for your product, you will need to once again expand the scope of your focus to better understand the market opportunities for continued expansion. […]

  5. […] I posted several times on the issue of focus, including the opportunity to develop a scope advantage against the large company, the issue of time horizon of CEO focus vs. company size, the the issue of CEO time horizon focus by day of the year. […]

  6. […] Our Approach The goal of operational value add is a principle that we have spent a great deal of time operationalizing through a combination of focus, value add resources, and a small fund size. We believe that staying focused, having the best resources, both internally and in our network, and then “putting all the wood behind the arrow” is a great approach for delivering the most value (I gave similar advice to emerging growth companies last year and, again earlier this year). Finally, and perhaps most importantly, we work extremely well and in partnership with our portfolio company senior management (an earlier post on the topic is here). The feedback to date from our approach has been outstanding. […]

  7. I have to say, every time I come to scottmaxwell.wordpress.com there is another exciting post up to read. A friend of mine was telling me about this topic a couple weeks ago. I think I’ll e-mail them the link here and see what they say.

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